The XYZ partnership has the following balance sheet. Assume all of the partners are individuals. Please use this information to respond to the following question.

If Q provides $45,000 of services in exchange for a 25% interest in the partnership:

Assets Tax Basis FMV

Real estate $120,000 $180,000

Liabilities $0 $0

Capital

X $40,000 $60,000

Y $40,000 $60,000

Z $40,000 $60,000

$120,000 $180,000

Regarding the balance sheet and information listed above, and assuming that Q acquires a capital interest in the partnership:

1. How much gain do X, Y, and Z recognize?

2. How much income does Q recognize?

3. What would your answer be under the Proposed Regulations?

4. What if it is later sold for $200,000?

5. What is the balance sheet afterward?